Wednesday, August 15, 2012

Successful investors buy stock in companies which are within their circle of competence. This concept has been ingrained in the minds of value investors by Ben Graham and his most famous student Warren Buffett. Investors should buy only stocks they are intimately familiar with, either because they have extensive work experience with the company in some capacity, or because they use its products and services.

Some of the dividend paying companies in my portfolio are corporations, whose products I and millions of other consumers worldwide use on a daily basis. Here is a summary of how my daily routine provides me with dividend stock ideas for further research. The narrative is rather simplistic, but the point is that we are surrounded by investment ideas everywhere. Only after training ourselves to spot these opportunities, will investors be able to capitalize on them.

First thing I do after I wake up is take a shower using a body wash and a shampoo. The body wash I use is made by Procter & Gamble (PG), whereas the shampoo is produced by Unilever (UL). I have been using the same brands of shampoo and body wash for years, and have not really thought about switching. This is a repeat purchase that I perform every few months or so. My dividend income derived from investment in Procter & Gamble and Unilever is currently paying for this expense.

I also brush my teeth using Colgate Palmolive (CL) toothpaste and shave using Gillette products. Gillette was acquired in 2005 by Procter & Gamble (PG). I use Kleenex products made by Kimberly-Clark (KMB) throughout the day, especially if it is allergy season. I use cotton swabs and Tylenol made by Johnson & Johnson (JNJ) as well.

Next step is breakfast -time for coffee and grabbing a quick bite to eat. It could be anything made by Kellogg (K), J.M. Smuckers (SJM) or Kraft Foods (KFT). Sometimes, a quick bite to eat could be getting a breakfast meal at McDonald’s (MCD), although it also sounds like a good idea for lunch as well.

I use water that my local utility is providing, and it is heated by gas that my local utility has provided as well. My electric utility powers the lights and the central air in my house. My usage of water, gas and electricity varies every month. However, the utilities are monopolists who earn a fair and steady rate of return. These could vary based off the area you live in. Some utilities include Con Edison (ED), Dominion Resources (D), ONEOK (OKE) and Piedmont Natural Gas (PNY).

After eating breakfast it is time to drive to work. Millions of people spend up to an hour in each direction commuting. You depreciate your car, your nerves and you use gasoline for that. Gasoline, which is an oil byproduct that is explored for, refined and sometimes even distributed by one of the major integrated oil companies such as Exxon Mobil (XOM) or Chevron (CVX).

Millions of people also use computers powered by Intel (INTC) processors and software created by Microsoft (MSFT). The TPS reports need to get done, and get done by the deadline as well. After the deadline is met, it is time for a company sponsored happy hour. Johnnie Walker Whiskeys, Smirnoff Vodka and Jose Cuervo are some brands made by Diageo (DEO), whereas Jack Daniels is a brand owned by Brown-Forman (BF.B). It used to be that all smokers would cause patrons to smell like cigarettes in bars with poor ventilation. Smoking indoors has been banned in many states, however it is a difficult habit to kick. I see people outside in any weather condition, still getting their Marlborough fix. Marlborough is a cigarette brand owned by Altria Group (MO) in the US and Phillip Morris International (PM) outside the US.

I would try to stop by the store at least once per week. Wal-Mart (WMT) is my one stop shop destination because of its everyday low prices. Apparently it is also a one stop shop destination for the 100 million people who walk in the stores every week. Some investors like business models that could easily be replicable, like Wal-Mart (WMT), McDonald’s (MCD) or Family Dollar (FDO).

This is just an example of everyday products or services that investors are surrounded by and could use for investment ideas. Careful research is important however, in order to determine if the company is attractively valued, and whether it could afford to grow earnings and dividends over the next decades.

4 comments:

Sometimes it is so simple to find good ideas. Thank you for remembering me on that. Nearly all the products and services around us are made by companies that we could invest in. The challenge is to find those who have a stable business model and a real chance to survive in the market

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